Tag Archives: stimulus

Ok, let’s buckle up the tool kit and look under the hood of what our Federal Reserve has been doing lately and indeed for the last few years. A little historical review is necessary to put matters in a proper perspective. It wasn’t but a few years ago that most of us would have had a really hard time naming the Fed Chairman and we certainly didn’t see many news items about the Fed meetings or the actions of the Fed. They were few and far between and there sure weren’t any press conferences given by any of the Fed Chairmen. About the only time the Chairman made any public announcements was twice a year when he testified to Congress and maybe a really short time answering a couple of questions from the press afterward and even then the new items were buried somewhere on page 9 of the paper. Today we have a celebrity Fed Chairman who talks all the time and when he isn’t the various Fed Committee members are holding forth with interviews and news conferences constantly. Back when those Federal Open Market Committee members were never heard from and they went about their work without notice or comment.

In ’08 the Fed had a balance sheet with a bit over 800 billion in assets. Now that balance sheet has ballooned to almost 3 trillion. The Fed has worked with the Government to pump huge sums into our economy and allow deficits to exist and rise and for the national debt to increase exponentially. In very late ’08 we had the TARP program which was Congress but it had the enthusiastic support of the Fed. That was about 700 billion and was sold as a fund to buy mortgages and mortgage-backed securities to shore up the collapsing housing market. In fact the TARP money was used to buy positions in the various banks deemed to big to fail and for the bailouts of AIG and those darn car companies. Then we had the first real QE which was over 1 trillion in Treasury purchases and other government paper and other mortgage securities; that lasted over a year. Overlapping that was the roughly 800 billion stimulus program under BO for all those “shovel-ready” jobs but which in fact went mostly to favored special interest groups in the electorate such as “activist” groups and unions and those public sector employees. Then along came QE2 which was another 600 billion bond buying program by the Fed for more bonds of various sorts and right on the heels of that came the Operation Twist program to exchange the long-term Treasuries for short-term Treasuries to the tune of about another 600 billion but that didn’t really add to the balance sheet significantly because they were selling as they bought. Now before Operation Twist has concluded they have announced the new QE3 which will run at least 40 billion per month to buy–they say they will start with more mortgage securities but the field is open for anything else they set their hearts on. There is no commitment that the purchases will only be 40 billion per month, it could be more, and there is no time limit and thus no monetary limit on how much money will be spent. They will continue QE 3 they say until there is “substantial” improvement in the unemployment figures. They don’t say exactly which figures–the rate, the participation rate, rate of employed to population, etc. Hope you have been trying add some of this up. You can double-check my figures all you want, I ain’t off but a rounding error.

Now let’s review what we got for this and what these programs in concert with the Administration have gotten us. The Administration of course promised a 5.6% unemployment rate if the Stimulus package was passed and Biden even went so far as to state in the summer of ’10 that that was the summer of recovery. Those claims were false. Also we were told that the food stamps and other welfare payments had a multiplier effect and would produce something like 1.72 in economic activity for every dollar spent for those programs. You can believe that one if you want. If that were really true then why don’t we just all go on welfare, spend the money with that tremendous mark-up in economic activity and I guess we would all be very well-to-do. AIG is being wound down and the Government is going to make a profit from its takeover. I never liked Greenberg or AIG but it sure makes one wonder if he wasn’t right back in ’08 when he said the Feds were making a mistake and that the company didn’t need to be confiscated and nationalized. I hope he and the other shareholders existing at that time of the takeover sue the pants off the Government and win. Are we really better off having bailed out the big banks? A few might have gone under and their shareholders and investors would have been banged but that is the risk all investors take. Our banking system as a system would have survived and might have thrived. Remember there were over 7000 banks then and only a handful were in trouble. The car companies could have done a regular and legal Chapter 11 and come out still in business; it would be owned by some one other than the unions however. That was the whole point of the BO bailout, to foster union loyalty forever and give them a bonus. The various QE’s have certainly added to our national debt. It has gone from about 11 trillion to 16 trillion. Those QEs have allowed the Government to run deficits. Remember that in the last couple of years the Fed has purchased more that 70% of all the Treasuries sold. That is monetizing the debt. Who else would have bought those Treasuries? All investors around the world have cut back on them. Yes, there still would have been buyers but what rate of interest would they have demanded for their loan? The Fed bought 1.7 trillion of all that debt in the last couple of years.

QE has driven down interest rates. That has some benefit but also the unintended consequences and outright harm to some. The savers and prudent people that lived carefully for the last few decades are getting hammered. They saved their money and get virtually nothing for it if they put it in the bank. Will sales of homes really go up significantly if the mortgage rates drop a little more? That rates are already about 3.5% for a 30 year, that is historically very, very low. So what if it drops to 2.8%? Will that really spur more buyers and the banks have all tightened their mortgages requirements greatly under duress and threat from the regulators. Will more debt get us out of debt? Any way you cut if the Fed is simply printing money to buy those Treasuries and other securities. It doesn’t have any money really, it literally just creates or prints more money with a computer stroke to buy those. That diminishes the value of the dollar and will lead to inflation. We will have inflation because of what they have already done. Barring a complete collapse of the economy, the only question is when and how bad the inflation will be. You already see the price of gold moving up and so will all other commodities over time.

We will examine more another day. Please ponder these thoughts. You might disagree with the analysis but the facts are not in doubt. The outcome can’t be good. Let the market work. The Fed IS the speculator and market manipulator-in-chief and we all are watching it happen right before our eyes. The wisdom of millions of us in a non-manipulated market will coalesce into a far better place if allowed to happen.
“the human fancy can paint with more energy the misery than the bliss of a future life”, from the Decline and Fall Of the Roman Empire. E. Gibbon, English historian extraordinaire. http://www.olcranky.wordpress.com

The nightly news for two years has been filled with comments and proposals for the smartest guys in the room about our economy and what it should be and how it should function. Even pretty arcane matters such as the purchase of Treasury notes by the Fed have become common fodder for the pundits. Economists are regular guests on the news broadcasts offering conflicting views about how things are and what course of action or inaction should be taken to improve our economic health. Ultimately, economic health is the foundation of our freedoms and prosperity. Universities, foundations and the halls of government are loaded with PhD’s in economics who are guiding or misguiding economic policy of Government, Inc. It is a complicated subject and it is easy to have one’s head twisted by the minutia of the discussions. But the fundamental concepts aren’t that hard and the basics for a free market system can be understood by most. It would be a help if some of these experts would spend less time studying the Great Depression and the recessions of ’81 or ’01 and studied the history of our economic beginnings as a nation.

Over 220 years ago we had just approved the Constitution and the first government under Washington was formed. There wasn’t a formal cabinet the way we think of one today. Jefferson was Secretary of State and had five employees under him, Know was the Secretary War with a handful of people under him, the Attorney General had not staff and was a part time employee who continued to have a private practice. Hamilton was appointed Secretary of the Treasury. He quickly had a staff of about 50 because of the paperwork needs to collect and process the import taxes from thirteen states which was the only source of revenue for the country and that was spotty.

Hamilton had no PhD in economics, there was no such discipline at that time. He did have books on commerce and trade and studied the British system of commerce, trade and public credit. He was starting with a blank slate and genuine economic turmoil. What we face today is picayune compared to the troubles our new nation faced. The
Revolutionary War had made the states run up enormous debts to fund the fight. Theyd issued bonds for the money received. Many of the buyers were the soldiers themselves and small farmers and merchants. But some wealthy individuals such as Morris of Pa. had also advanced considerable sums to pay for the war effort out of their own pocket with a promise of repayment from the Continental Congress.

Economic activity during the War and after was stagnant because there was no universally accepted medium of exchange. We had Continental dollars but they were not worth face value. The bonds issued were heavily discounted because most have serious doubts they would ever be repaid. Business transactions were conducted in a true hodge podge method. Spanish pieces of eight, Dutch Guilders, British pound sterling, the Continentals and bonds were all used to pay for goods and services. It was a mess to say the least. This was the economy that Hamilton faced. He naturally studied the British model since it was the one most Americans were familiar with and it had in fact helped expand and preserve the British empire. It worked better than chaos. For this he was later blamed for being “pro British” and a closet monarchist.

He studied everything he could for a few months. He was acutely aware of the political pains of any decision made. Many of the bonds issued by the states had been bought by speculators. They were gambling that the new country would succeed. The sellers needed money and had lost faith in the future. Stark philosophical issues abounded with the political mix. Our Constitution recognized the need for paying the debts and is embodied in Article 6 of the Constitution for the debts of the Continental Congress. There was much public outcry about the government paying off the debts reflected in the bonds. The populist sentiment was that this would only reward the rich and the speculators and hurt the little people. Many wanted to default on the bonds. Hamilton wrote his ideas and Theories down in a 40,000 word booklet. It was a master piece of scholarship and practical application of our values, the law and sound economic theory. Hamilton was an excellent lawyer and had prospered as one before he became Secretary of the Treasure. Trust was critical. The people and all creditors had to believe in the government and its commitments. Without that trust all else would not matter. He knew that the sanctity of the contract was the cornerstone of the rule of law and all the rights of property that emerges from that foundation. Without that we would have no freedoms.

Hamilton concluded that the bonds would be paid and honored at full face value. This would greatly benefit some of the speculators he knew. Some were his friends but that was beside the point. It was the rule of law; it was a matter of building trust. Some had advocated that the bonds should only be paid to the original owners but Hamilton shot that down on practical grounds–how could you find them, determine the price they sold them for, and what about the claims of those who paid hard money for them? He also realized that the bonds would have real value when folks recognized they would be paid in full with interest. They could become like money. They would be a medium of exchange between merchants because they would have real worth.

After much ballyhoo and political tumult, the Hamilton plan was adopted. It got the nation off on the right course. It established firmly the principle of the rule of law in all matters commercial and that public debt was a sacred obligation and that it should be honored and provision made for its retirement. As a note, he at one point talked about public debt being a “blessing” those who favor stimulus now often quote that. They do so out of context. Read his essay on economics. He was referring to the overall scheme of building trust with that debt that already existed. He was not promoting the idea that government should borrow and spend willy nilly. He would be appalled at our current economic mess and debt. Where is a Hamilton when we need him so badly. Regrettably our tax cheat in chief Geithner hasn’t studied Hamilton enough if at all and certainly isn’t channelling him in the new age sense.

Article 1, section 9 of the Constitution provides that a “regular Statement and Account of the Receipts and Expenditures of all public money shall be published”. Well, the government spews out reams of numbers annually. But one wonders how “regular” it is. http://www.olcranky.wordpress.com

What to do and what not to do about our current economic malaise is all the news these days with lots analysis of the technical aspects of the economy at the forefront by most of the pundits. They are the matters that can be weighed, counted, sorted into data banks and then fed into computer models that some supposedly very bright person built in the “garage” but that we the great unwashed public are to deem to understand. Those data are important and it is very useful that they be discussed in even greater detail than they have been so far. We could use an informed debate about the mechanics and greasy parts of the economy. But people aren’t machines and as you all have learned they don’t always behave as you might expect, predict or want them to. Those animal spirits come to the fore often and people start doing things that no computer model will predict.

Mostly you can expect most of the people most of the time to behave rationally. History would bear you out in that assessment. There is no doubt that we have a true herd mentality and when we are sure what to do more often than not we will follow the flow of those around us. The examples of that behavior are numerous. If you are in a large crowd anywhere, a football game, theatre, mall or wherever and you notice a large number of people heading for the exits even if there is no alarm or other warning of any kind, it is very likely that you will head that way too. That behavior doesn’t make you a lemming blindly following others to any result. Your experience has taught you that something must be amiss or all those folks wouldn’t be heading for the high ground. It is not an irrational reaction but a cognitive one. The problem can be that sometimes the matter that started a group behavior came from an insignificant event or was mis-interpreted by the early observers.

If we notice a lot of people that are acting apprehensive then we become agitated ourselves more often than not even if we have not idea of what cause the apprehension in the first place–we want to find out. People can be very resilient and resourceful when challenged and especially with a little leadership. Our markets now are a morass of confusing messages and the ones that make the headlines mostly tell us to distrust anything to do with “business” even though business is what puts food on the table for all of us directly or indirectly. The Washington mantra for months has been a pounding of Wall Street and various sectors of the economy from health to autos to energy and banking, pharmaceuticals and insurance. Heck, even the tanning salons got slammed with a huge tax just because they were there. Icons like Coke and Fritos get banged along with MacDonald’s and others on a daily basis. With all that negative karma is it any wonder that the economy shows little life and more importantly little enthusiasm?

The attitude from Washington is that everyone but government is not but a heartless bunch of rapacious crooks and you better watch out for them. But not to worry if we give enough power to Washington they we take care of everything and everyone. They really don’t get it that a large chunk of the population doesn’t trust the very entity that they think is the 7th cavalry to the rescue. The people sense that something is not right in Denmark to paraphrase the Bard. They throw mud and venom at huge segments of our economy and think nothing will stick to them. The big problem is attitude. They clearly project an attitude that there is no confidence in any entity but government and then wonder why the economy is sluggish.

Even if all the data points and the computer models look positive there will be no groundswell of economic activity until “everyone” has a better attitude about the future; they need confidence that things will work if they try hard. Great leaders get people to do things that seemed impossible or beyond their capacity. They challenge them with the task and encourage them with the reward for a mission accomplished. Remember the Alamo? Those guys had 13 days before the final battle. Several groups of men both left the mission with messages and some came as reinforcements during that period. The fact is that many of them could well have escaped to fight another day but that would have seriously diminished the prospects for ultimate success in the fight for independence. Leadership made them stay. Attitude mattered. Read some of the true histories and autobiographies of the men captured by the Japs during the War. Learn of the incredible cruelty and hardships they faced and dealt with years. The suffering and torment seems beyond the ability of anyone to survive but about half of them did. Those survivors all say that attitude kept them alive. Many just lost heart and literally laid down and died.

We need positive messages from Washington but that isn’t likely to happen until there is a radical change at the WH and Congress regrettably. Merely having new leadership is place will lift the spirits. The attitude will change before they are all sworn in. If that doesn’t happen we are in a for a long period of stagnant growth and economic activity at best. The message from Washington now carries with it a hostile attitude toward the American dream of financial freedom and individual achievement; it is all about collective achievement and sharing the pain. The worry is that we might actually achieve what they want in Washington. That thought is depressing for many and accounts for the current wary and even hostile attitude to Washington.

“The handwriting on the wall” expression comes from Daniel in the Bible. It was Daniel who could read the mysterious handwriting on King Belshazzar’s wall which predicted doom. http://www.olcranky.wordpress.com

Since last fall we have had a great deal of discussion and debate concerning the phrase of too big to fail (TBTF) which was a newly coined term created seemingly just for this current economic mess. That concept led to the TARP; it also produced the TALF program, remember that? Likewise, a substantial portion of the Stimulus bill was indirectly to support the same idea that some companies were TBTF. Additionally, we must recall the Federal Reserve has gone to extraordinary lengths to prop up those institutions with their 1.5 trillion dollar purchase of mortgage-backed securities, treasury bills and the simple act of printing more money and keeping the funds rate a virtually zero. Yes, some of those actions and some of that money was for the general economy allegedly but huge bundles went directly to those TBTF concerns.

First it was Fannie and Freddie, they were followed by AIG and after Lehman collapsed they blinked again even worse and the major banks were brought into the fold along with GM and Chrysler. The worst of the panic is over. The economy is still hurting badly and will continue to do so for years to come especially if the current proposals for cap and tax and health care and the other tax increases all take effect. The theory was that these TBTF’s went down or any one of them it would destroy the economy. Well, I am not an economist but I have dealt with bad times and struggling companies during my 43 year career and have seen over pretty severe down turns. The ’70’s were no picnic. That entire decade was a downer for those of you too young to know about it. Here is not the place to examine in detail the likely results if we had let those institutions go under or some of them. If Fannie and Freddie went down there would still be a demand for housing and house loans and a profit to be made there. The S and L’s made money for decades doing just that. Lots of big investment houses, many foreign might have lost lots of money on an AIG failure but all those policies would have been honored which is much more important to my mind. The decision to bailout GM and Chrysler and have them become Government, Inc. entities was clearly a political decision not an economic one. New smaller companies would have emerged from a Chapter 11 and no one would have been left without a car if they wanted to buy one.

We made a mess of things by allowing ourselves to be duped with that concept of TBTF. Yes, things would have been difficult if they had gone down. But I can argue just like the White House that but for those actions things would have been better by now, not worse. They say everything would have been much worse if we hadn’t taken all those actions. An argument can be made to the contrary very cogently. Remember that only 350 billion of the TARP money had been spent by inaugural day. Everything else came after that date. The GM/Chrysler bailout, the extra money to the institutions, Stimulus, TALF and all the buying by the Fed at the urging of the WH. Whether you agree or not is not important, but I bet most of you would agree that it hasn’t been handled well. It could have been done better. I favor letting any failing company to fail, others would promote more government regulation and takeovers. Guess a lot depends on your trust level in the free market system vis a vis Government. Take your pick. I will trust a businessman any day over a politician.

However we now will soon face another serious problem of the same ilk. All the current proposals for health care reform will raise taxes greatly and will severely cut back on expenditures to hospitals, insurance companies and doctors. There will be special taxes assessed against the medical device makers and pharmaceutical companies. Hospitals do go broke in spite of what you may think about them making way too much money. I have represented three hospitals over the years in Chapter 11. Yes, the insurance companies will get more customers but they will also have to add many new ones that carry much higher risks and thus larger claim payouts. Doctors facing cutbacks will make choices. Many will decide to move locations, probably to the larger urban areas. Not many will quit practicing altogether but those moves will further deplete the need for medical care in the rural and outlying regions. Many of the health insurance companies are affiliates or subsidiaries of life insurance companies. If some of them go under because they can’t make sufficient profits then that will impact the life company they are affiliated with. Those life policies will be endangered and those annuities that many people bought.

We need to think long and hard now on the front end how we are going to deal with those hospitals, insurance companies and drug makers that are TBTF. Will we even acknowledge that concept for any of them? What about the drug company that has promising research for a specific cancer cure but then goes under due to the weight of the new taxes imposed on it and the reduction in the tax breaks for research. Trust me there will some of these entities that do go under as the Government, Inc. health program develops over the next decade. They are proposing a 21 % cut just for the doctors. Would you like a 21% cut in your pay today? How would that effect you? For some such a cut would produce bankruptcy. If you live in an outer suburb and have only two hospitals and one goes under then you might have to drive 50 miles for medical treatment or wait inordinate amounts of time at the survivor hospital. Are we going to simply bailout these failing hospitals, insurance companies, and pharmaceutical companies like we did GM? Where is that money allocated in the CBO report. www.olcranky.wordpress.com

Quite often in the last several weeks defenders of the administration’s stimulus plans, bank and auto takeovers, cap and tax and health care reform have made references to how our economy was in 1983. They especially use the data regarding unemployment from that time to justify the current policies and proposed policies. Inflation was still high at that time and so was unemployment. But that is about where the analogy begins to break down. We are told by the administration apologists that if we will follow their advice and let Government, Inc. take the leading role in our economy and raise taxes through the income tax code and cap and tax and green jobs and government control of banks and the auto industry that everything will turn up roses. Their position is that if we just trust them that the economy will recover and prosper under their directives and direction.

Well, they have only a couple of their facts right and all their conclusions wrong about comparing 1983 to today. First, we had been dealing with a decade of inflation. Gerald Ford even had that silly WIN button he wore to try to promote the fight against inflation. For those who don’t recall it stood for “Whip Inflation Now”. It didn’t work and nothing that Carter did made things better. Indeed his efforts made things even much worse. In the late ’70’s and into the election of 1980 there were weekly rumors about what item or items would be in short supply due to FERC and all the other government policies in vogue at that time. You can’t turn the economy on a dime, it takes time. Even when an administration is attempting to alter the economic course the general public and the business world have to buy into it and believe in it. Confidence and expectations are what drive any economy. Consumers spend more when they are confident about their jobs and what their tax burden will be and even more so if they believe their taxes will be reduced. Likewise Wall Street and everyone with an IRA or 401K always make their investment deciions on what they believe the future holds. They never look back except as a learning tool and guidance about what they believe tomorrow will bring.

In 1983 the atmosphere and confidence level were quite different than they are today. Today we face the prospect and threatened certainty of much higher taxes across the board. The income tax rate will jump for high wage earners, the cap and tax legislation will tax everyone that breaths, even the estate taxes will jump up again in 2011 and the price tag for health care reform will be high, very high. The small business owner will be hit from all sides, his personal taxes will rise, his cost of doing business will rise with health care reform and the cap and tax legislation will make his cost for his product or service more expensive to deliver to his customers. At the same time the cost for electricity will soar and those who want a new car in a couple of years will find the cost much high due to CAFE standards and the “green” initiatives being proposed. Add to those factors the overwhelming US debt and the continued borrowing by Government, Inc. and the concommitant interest expense to pay the Chinese and others for buying our bonds and the propects for inflation are plain to be seen by anyone who looks. We are assured that inflation is not a concern but it is self evident that it is a concern unless spending is dramatically curtailed or tax revenues are sharply increased. There is virtually no talk of any coherent plan to address the spending debacle and nothing to indicate a drop in borrowing for a far as the eye can see.

In 1983 there was hope–lots of hope and enthusiasm. Even though inflation was still high and so was unemployment the proposals from Washington were encouraging, not discouraging for small business. It was indeed a time to celebrate a “Morning in America”. Optimism abounded because the prospects were for lower taxes for individuals and businesses and for less government intrusion into our daily lives, not more. When folks thought about the future a year or more out they believed that things would be improving. They didn’t see the US debt being a insurmountable burden on their shoulders. They believed that they could achieve success.

Who do you know these days that is optimistic about the future of our economy? How many do you know who even optimistic about the preservation of our freedoms and a restrained Federal role in our affairs? The true believers love the proposals. They like and want the government involved in everything and they like the government controlling all or almost all of our economic activity. They love Big Brother and want to be a part of his organization. While that number is significant I don’t believe it is more than a 30% or so range of our population. I may be wrong. Maybe I hear a different drummer. But the one I hear beats the tune of freedom and hope. I do hope many will go back and refresh their memories about what was occurring during the early ’80’s. I think it would be great to recycle that approach to government and our c0untry again. We faced dark clouds hanging over us in 1980 but unleashing the American spirit for entreprise parted them to a bright sky for years. We face storm clouds today and they are of our own making and we can cast them away if we follow tried and true principles.

American Presidents should not be addressing school kids. Not any of them of any party. That is not a wise path to take. It is too fraught with potential abuse to be allowed. A President should not speak to captive audiences but only willling citizens. www.olcranky.wordpress.com

When I was a youth I loved to watch the newsreels at the movie house. Lowell Thomas was the best known commentator of that era. His voice would give a pronouncement of the current events around the world. It would be a mix of serious news and at least one fun item. They only lasted about 5 minutes but I thought they were fascinating. I wasn’t into reading the daily newspaper yet and TV wasn’t in our house and even later when it was the news was very limited and so boring. Those early newscasts were 15 minutes long and covered the basics. Most folks used the daily paper(s) for their news of the day. The news reels were updated every week. So for that time it was pretty current.

In school I was a weird one because I actually enjoyed those films we would have every other week or so about one of our topics–history, science or maybe geography. I thought they were really neat and a great break from the boring talks by the teachers. They were scratchy and in black and white and the productions were definitely below B grade movies. But some biography of Edison or a story of the Hundred Years War always got my attention. When we got a TV in time for the Notre Dame v. SMU game in ’49 the telecasts were very spotty. TV was on only about 4 days a week and even then only from the late afternoon to about 10 at night. That changed quickly and soon it was on most of the day, seven days a week. Sometimes in the afternoon they would have “filler” spots between the regular programs. There were lots of local “variety” shows usually sponsored by a grocery chain or 7/11. There would be big promotions all the time so that if you bought from one of the sponsors you would get coupons and you could use them to buy products during one of the local shows. I went to a couple of those with my mom. The ladies bought irons, fans, drapes, etc with the coupons on an auction basis using those coupons. The show would always have some local entertainment. It was uniformly awful. I was even part of that on one show. My elementary school had a square dance club or whatever we were called. I was part of that. You can guess who’s idea that was. Yep, Mom never could understand why I wasn’t just thrilled as a 11 year old boy to be in a flamboyant cowboy shirt and square dancing my little heart out. I can only imagine the chills and thrills that went through the TV audience at home watching us do our dosey does. My favorite “filler” short on TV was “Industry On Parade”. They were about 15 minutes long and produced by a trade association of manufacturers or the US Chamber of Commerce. It was an early version of Modern Business you see on the History Channel these days. They would take a particular industry each week and go into detail about how it worked; how they produced their goods or products. It would be the steel industry one time, then autos, then commercial fishing, an agricultural product another time. They displayed the US manufacturing process on every conceivable product from TV’s to pet food. I loved that show. I was interested in how things worked, the details. Most of my friends thought it was boring as the devil. So my weirdness goes back a long way. It is hard to believe but at that time the US made everything that the world wanted and we built almost all of our consumer products right here. There was no such thing as offshore manufacturing. Americans built irons, washing machines, radios, TVs, cars, bulldozers, blenders, furniture, all our clothing and shoes were made here and very little of our crops were imported from Mexico or anywhere else. We were very self sufficient and the world acknowledged that we were the benchmark for all manufacturing processes. For decades we were the world leader in building all the electronic products–Zenith, RCA, Motorola, to name only a few. “American Made” meant the best quality in the world. We were the envy of the world in the variety and and quality of all our products. It is not only sad but damaging that we no longer have that reputation. Our manufacturing base is pretty much gone now. I fear it will never return. Others do that work cheaper and with good quality. We used to laugh at the early products from Japan or Taiwan because the quality was a joke. We don’t now.

Some of those early newsreels would show Germany on occasion. This was done well into the ’50’s. Their infrastructure was decimated during the war. Every important bridge or train trestle was destroyed. The manufacturing had been bombed into oblivion. The water and power systems were all legitimate targets and destroyed and likewise the power grids and distribution systems. Every major city there had hundreds of square miles of nothing but rubble. We had so thoroughly destroyed the German nation that in the last few months of the war the Air Corp literally had run out of targets. There were no strategic targets left. The air missions were strictly used to find “targets of opportunity”. Naturally there was no sympathy after the war to aid the Germans. They got very very little aid from us or anyone else after the war. They were on their own. No politician here or anywhere else would be about to recommend spending money to help the Germans. That would have been political suicide after the war. They didn’t have a stimulus bill to rebuild their infrastructure. This was a nation of about 60 million people. Within 15 years they had new infrastructure in place. There were still pockets of destruction in the major cities in the housing stocks. They had their water and electricity up and running in short order. Many had thought it would take five years to get those two vital systems working properly but it only took them about 2 years for most of the country.

We have had a trust fund for our infrastructure for decades now. We just passed an almost 800 billion stimulus bill and that Ominibus Bill for 410 billion don’t forget and yet we have those crying the blues that everything we have is about to fall down and it is the worst catastrophe in the known world, only behind the disaster of Global Warming. My advice is get a grip and get some perspective. Like so much of human endeavor will and a can do attitude is more important than anything when it comes to achievement. Those Germans didn’t get 3 breaks a day for a Starbucks and weren’t retiring after 30 years with a big pension and didn’t have health insurance at that time. Just like our early settlers tamed this wild land without aid from anyone. Big Government was rarely around to give you any help in Kentucky in 1803 or Germany in 1952. Our early pioneers did manage to build roads and bridges and so did those Germans with virtually no government support. What support there was came from private enterprise in both cases.

We need a stimulus for our hearts and souls not a government bank balance made up of phoney money created on debt and printed money. A few more calluses on hands wouldn’t hurt either.

China has 1.5 trillion of our debt. They are our largest creditor. The new guy talks constantly about our dependence on foreign oil and buying it from people who are not our friends. He points out how dangerous that is. Well, is China our friend? And we are expecting them to buy even more of our debt, lots more. How wise is it to owe that much money to someone who is not your pal? www.olcranky.wordpress.com

Let me get this straight. The Government is going to spend lots of money and that is going to create wealth for all of us. They plan on spending trillions in the next year or so. That is a lot of potential wealth creation. Let’s do some math on that one. Take your own estimate of how many taxpayers there are in the country right now. Not total population but taxpayers. Then divide that into say 2 trillion which seems to be a pretty conservative estimate now of the spending proposed between bailouts and stimulus planned for the coming year or so. (Indeed when you add in the extra money that is likely to be spent by the Fed which will be off the expense books it is quite likely too low). Anyway, do your own math and see what you come up with per taxpayer. It is a huge number, at least to my way of thinking. Then just cut whatever number you came up with in half. Let’s just write a check for those folks. It would be more efficient. Of course there is one big problem with creating wealth and a healthy economy with Government spending and that is that the money has to come from taxes ultimately. That means we are paying for it. We are advancing money to ourselves. Regrettably we don’t get it until it has been filtered through Washington and then redistributed the way the politicians want after they pick the winners and losers in our society. The winners you can be sure are the ones who are most likely to vote back into office the very politicians who parcel out the money.

We have had a tremendous reduction in wealth over the last year because of the drop in values of everything from stocks to housing. That loss may well continue for some time to come and I question whether new Government spending is going to restore that wealth. Every dollar spent has to be rasied by taxes. Even the money borrowed by the Government has to be repaid and you guessed it, that can only happen if the tax revenues are there to pay them back. The only alternative is inflation if the Government decides to simply print more money and make it worth less. It is a demographic fact of life that the housing market is not going to be robust for years because of the bust of the Baby Boom generation. We can’t change those numbers no matter what Congress does and doesn’t do. There will continue to be demand for housing but it will remain subdued compared to the ’80’s and 90′ and the early years of this century because there will not be enough buyers for all types of housing as there was during the prime time for the Boomers. That demand and the ridiculous regulations that not only permitted but urged lending to folks who couldn’t afford the house they were buying caused the bubble in housing prices for the last 15 years.

There was a long time rule of thumb that house prices would grow at about the same rate as overall wages. Historically that has been around 3% at year. Which is not bad for a long term investment and especially since it is an asset that the average Joe gets to use on a regular basis. He lives there. As you know the value of housing was increasing far beyond that 3% rate recently in many areas of the country for years. That was a clear warning sign to everyone. Anytime any asset starts appreciating much faster than an historical average you can be sure that at a point that rapid increase will disappear. Sometimes the value of gold will increase $10 in a day but it can’t do that day after day ad infinitum. Nothing can apprecite like that.

We are probably in for a fairly long haul of being thrifty because people are just now learning the lessons of excess. The excess was on all levels–private and governmental. We will truly be in an Age of Thrift for some time. It won’t last forever, nothing every does in economics, but it will endure for years. Government spending won’t make that change nor will it affect the demographics of the waning Boomer years. I want to see us have a robust and growing economy as much as the next person. I don’t understand though how taxing ourselves will do it. That
Government spending is a tax plan ultimately. I would love to hear someone explain to me how all that spending is not going to result in a huge tax bill. I fear we will not be spending our way to prosperity but taxing ourselves into economic oblivion. Just when things might seem to be improving the bills will start arriving in the mailbox.
Even the Government hasn’t figured out a way yet to create the free lunch. They will try mightly to persuade you that that is what they are offering now. Taxes or inflation. Those are our choices down the road if we embark on this profligate spree of Government largess. Neither has positive implications for our future. The market if left unfettered can and will correct itself by punishing the foolish and wasteful and rewarding the industrious and thrifty. Trying to be Mother Nanny will not solve our problems but merely surrender more of our freedoms to politicians and entangle our economy even more with the whims and caprices of those politicians who want us in thrall to Mother Government.

Scrip is not money but more akin to a redeemable coupon for assets, goods or services. As the Allies took over the countries of Europe during WWII they often would resort to scrip on a short term basis for the market to function at least on a primitive basis. The victors would issue it to the local population for use to acquire the necessities of life. Much like a ration card. Corporations can even issue scrip. In over 40 years of law practice I was involved in one case where we issued scrip to creditors. It is the only case I know of where it was done. Germany worked under a scrip and ration card system for about 3 years after the War. The new Marks weren’t put into circulation again until about 1948. Each person was issued a set number on a specific date and then they were off and running.